Microsoft powers up under new leadership

Microsoft is wrapping up one of the busiest years it’s ever had.

A little more than a month into 2014, Microsoft announced that Satya Nadella would serve as the third chief executive in its history, taking the reins after 14 years of Steve Ballmer’s leadership.

Microsoft employees and analysts outside the company have spent most of the months since talking about how quickly the company seems to be changing course under its new leadership.

Instead of a play-by-play of Microsoft’s year that was, here’s a quick take on the main ways Microsoft looks different from how it did a year ago. (And for all the headlines about a new direction, there are a couple of arenas in which the Redmond tech giant remains the same.)

Nokia deal, layoffs

In April, the company wrapped up its $7.5 billion deal to buy Nokia’s handset unit. The acquisition, the second-largest in Microsoft history, dramatically expanded the company’s footprint in the hardware business.

The aftermath of that deal – as with many corporate marriages of that scale – was characterized by layoffs. Microsoft in July said it would shed 18,000 employees, the largest layoff in company history. About 15 percent of those cuts came in the Puget Sound region, a relatively small blow given that the region was home to about a third of Microsoft’s workforce before the cuts.

Though the layoff was focused on newly redundant arms of Nokia’s business, the cuts extended to units more central to Microsoft, such as marketing and engineering roles and a research facility in Silicon Valley.

To optimists, the scale of the trimming was evidence that Nadella and finance chief Amy Hood were serious about saving money that could later be put to work in faster-growing areas of the company like cloud computing. Pessimists saw a shortsighted effort to appease Wall Street’s hunger for higher margins. And the stock rose strongly.

Cloud keeps growing

Cloud computing, or using servers in data centers to run customers’ software and Web applications, isn’t a line of business that suddenly sprang up under Nadella. Ballmer in 2010 said Microsoft’s investment in the cloud was a bet-the-company move.

But 2014 saw those investments start to pay off in a big way. Nadella placed the cloud at the core of Microsoft’s mission, announcing the company’s goal to serve a “mobile-first, cloud-first” world and shelving the “devices and services” mantra of the late Ballmer era.

Revenue from the cloud at the end of Microsoft’s fiscal year in June was running at a rate that would total $4.4 billion a year. Most of that can’t be tallied as profit yet, as Microsoft continues to spend similar amounts building the server farms and related infrastructure to power the continued growth it expects.

Microsoft plays nice

Ballmer’s Microsoft was defined, in part, by a “first-and-best on Windows” strategy – that is, an effort to push customers toward Windows PCs, laptops, phones and tablets, at all costs.

That approach looked increasingly tenuous in recent years as sales of Windows-driven PCs stagnated and the number of mobile devices running Google’s Android or Apple’s iOS topped 1 billion.

The ship started turning around this year with a flurry of moves to make it easier to integrate Microsoft products into software and devices outside the company’s own ecosystem. Microsoft in March announced it would make Office available for the iPad, a decision followed in November by the news that free mobile versions of the software would be released for Android and iOS devices. The company also integrated Dropbox online storage, a competitor to Microsoft’s OneDrive, into Office, and signed a deal to plug Microsoft programs into the customer-tracking software built by occasional rival Salesforce.com.

This more-open Microsoft isn’t limited to consumers. Microsoft made a pitch to keep its software-development tools an industry standard by releasing portions of its .NET developer framework under a license that let users tinker with the source code. The company also said it would support their use for Apple and Linux operating systems.

Windows still reigns

For all the changes in Redmond, software remains king. Particularly software sold to businesses.

Microsoft’s freebie offers – from Office on an Android tablet to Windows licenses on small devices – don’t extend to the business customers that account for the majority of Microsoft’s profit.

The company is betting it can use steep discounts to keep a foothold with individual technology users, without prompting major corporate clients to worry about why they aren’t getting the same deal.

Meanwhile, Microsoft is knee deep in the development of a product it’s released an upgraded version of every few years since the Reagan administration: Windows.

The aim is that Windows 10, set for release sometime this year, will remedy the issues that hampered Windows 8, the previous major effort. That version, designed to bridge the gap between tablets and PCs, created a hybrid environment that confused many users. It also didn’t carry a ton of appeal for the business customers used to Microsoft’s familiar start menu and desktop interface.

Windows 10 is “going to be a very good opportunity for us to reinvigorate the entire Windows ecosystem,” Kevin Turner, Microsoft’s chief operating officer, said at a conference this month.

How Microsoft fares in 2015 and beyond could hinge on whether the company is able to capitalize on that opportunity.